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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1 to
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1997
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-21786
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 57-0962375
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7909 Parklane Road, Columbia, SC 29223
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (803)741-3000
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Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for each shorter period that the registrant was
required to file reports) and has been subject to such filing requirements for
the past 90 days.
YES X NO
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The number of shares of common stock of the Registrant outstanding as of October
31, 1997, was 20,320,046 (21,336,048 after giving effect to the 5% stock
dividend declared on October 31, 1997).
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
Form 10-Q/A for the quarter ended September 30, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements - (Unaudited)
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Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
SIGNATURES 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)
September 30, December 31,
1997 1996
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ASSETS (Unaudited)
Cash $ 8,939 $ 2,492
Residual certificate 7,550
Receivables 96,882 60,668
Mortgage-backed securities 196,675 123,447
Mortgage loans held for sale 893,656 678,888
Mortgage servicing rights, net 128,713 109,815
Premises and equipment, net 24,287 21,135
Goodwill and other intangibles 8,221
Accrued interest on loans held for sale 4,004 4,491
Other assets 35,217 27,458
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Total assets $ 1,404,144 $ 1,028,394
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings $ 1,129,065 $ 805,730
Long-term borrowings 6,485
Accrued expenses 13,438 11,386
Other liabilities 76,573 53,977
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Total liabilities 1,225,561 871,093
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Stockholders' equity
Common stock 210 193
Additional paid-in capital 171,151 149,653
Retained earnings 11,190 12,007
Unearned shares of employee stock ownership plan (3,968) (4,552)
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Total stockholders' equity 178,583 157,301
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Total liabilities and stockholders' equity $ 1,404,144 $ 1,028,394
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See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except share information)
(Unaudited)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
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1997 1996 1997 1996
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REVENUES
Interest income $ 53,301 $ 49,809 $ 21,613 $ 14,508
Interest expense (39,115) (37,029) (17,078) (10,008)
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Net interest income 14,186 12,780 4,535 4,500
Net gain on sale of mortgage loans 71,578 59,348 29,328 19,312
Gain on sale of mortgage servicing rights 5,948 964 3,237 775
Loan servicing fees 23,049 21,379 7,711 7,520
Other income 572 404 146 106
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Total revenues 115,333 94,875 44,957 32,213
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EXPENSES
Salary and employee benefits 43,631 37,830 16,487 12,315
Occupancy expense 5,328 4,125 1,886 1,485
Amortization of mortgage servicing rights 13,673 11,064 4,840 3,748
General and administrative expenses 29,580 14,608 17,837 4,858
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Total expenses 92,212 67,627 41,050 22,406
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Income before income taxes 23,121 27,248 3,907 9,807
Income tax expense (8,713) (10,340) (1,340) (3,626)
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Net income $ 14,408 $ 16,908 $ 2,567 $ 6,181
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Weighted average shares (retroactively 20,902,473 18,916,081 21,260,707 19,914,160
adjusted for the 5% stock dividend declared ============ ============ ============ ============
on October 31, 1997)*
Net income per common share $ 0.69 $ 0.89 $ 0.12 $ 0.31
============ ============ ============ ============
* The provisions of Accounting Principles Board Opinion No. 15, "Earnings
per Share" required that the Company, effective for the first quarter
of 1997, prospectively commence to report net income per common share
on a primary earnings per share basis. Accordingly, the weighted
average shares outstanding for the third quarter of 1997 and the nine
months ended September 30, 1997 includes common stock equivalents while
such equivalents are excluded for the comparable periods of the prior
year.
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands, except share information)
(Unaudited)
Unearned
Common Stock Additional Shares of Employee
Nine Months Ended ----------------------- Paid-in Retained Stock Ownership
September 30, 1996 Shares Amount Capital Earnings Plan Total
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Balance, December 31, 1995 14,550,462 $ 146 $ 84,533 $ 10,725 $ (2,000) $ 93,404
Issuance of restricted stock 16,410 * 256 256
Net proceeds of public offering 3,426,552 34 47,417 47,451
Stock dividend adjustment 1,261,332 13 17,115 (17,128)
Cash dividend (542) (542)
Shares committed to be
released under ESOP 111 300 411
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 25,107 * 157 157
Loans to ESOP (2,365) (2,365)
Net income 16,908 16,908
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Balance, September 30, 1996 19,279,863 $ 193 $149,589 $ 9,963 $ (4,065) $155,680
========== ===== ======== ======== ======== ========
Unearned
Common Stock Additional Shares of Employee
Nine Months Ended ---------------------- Paid-in Retained Stock Ownership
September 30, 1997 Shares Amount Capital Earnings Plan Total
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Balance, December 31, 1996 19,285,020 $ 193 $149,653 $12,007 $(4,552) $157,301
Issuance of restricted stock 23,528 * 328 328
Cash dividends (1,739) (1,739)
Acquisition of Meritage Mortgage
Corporation 673,197 6 7,162 7,168
Exercise of stock options 62,000 1 379 380
Shares committed to be
released under ESOP 213 584 797
Shares issued under Dividend
Reinvestment and Stock
Purchase Plan and Stock
Investment Plan 5,599 * 18 (78) (60)
Retroactive adjustment for the 5%
stock dividend declared on
October 31, 1997 1,002,467 10 13,398 (13,408)
Net income 14,408 14,408
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Balance, September 30, 1997 21,051,811 $ 210 $171,151 $11,190 $(3,968) $178,583
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* Amount less than $1
See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
(Unaudited)
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Nine Months Ended September 30,
1997 1996
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OPERATING ACTIVITIES:
Net income $ 14,408 $ 16,908
Adjustments to reconcile net
income to cash (used in) provided by operating activities:
Depreciation and amortization 16,191 12,980
Employee Stock Ownership Plan compensation 797 291
Provision for estimated foreclosure losses 2,605
Increase in receivables (36,214) (1,451)
Acquisition of mortgage loans (7,799,804) (7,928,301)
Proceeds from sales of mortgage loans and mortgage-backed securities 7,583,386 8,279,643
Acquisition of mortgage servicing rights (175,232) (174,941)
Sales of mortgage servicing rights 146,004 157,532
Net gain on sales of mortgage loans and servicing rights (77,526) (60,312)
Decrease in accrued interest on loans 487 4,757
Increase in other assets (6,679) (8,948)
Increase in residual certificates (7,550)
Increase in accrued expenses and other liabilities 24,648 3,162
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Net cash (used in) provided by operating activities (314,479) 301,320
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INVESTING ACTIVITIES:
Purchases of premises and equipment, net (5,500) (6,587)
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Net cash used in investing activities (5,500) (6,587)
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FINANCING ACTIVITIES:
Proceeds from borrowings 20,666,472 25,933,824
Repayment of borrowings (20,336,652) (26,272,671)
Issuance of restricted stock 328 256
Shares issued under Dividend Reinvestment and Stock Purchase Plan
and Stock Investment Plan (60) 157
Acquisition of Meritage Mortgage Corporation (1,750)
Debt issuance costs (553)
Cash dividends (1,739) (542)
Net proceeds of public offering 47,451
Exercise of stock options 380
Loans to Employee Stock Ownership Plan (1,954)
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Net cash provided by (used in) financing activities 326,426 (293,479)
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Net increase in cash 6,447 1,254
Cash, beginning of period 2,492 2,161
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Cash, end of period $ 8,939 $ 3,415
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See accompanying notes to consolidated financial statements.
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RESOURCE BANCSHARES MORTGAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Note 1 - Basis of Presentation:
The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes of Resource
Bancshares Mortgage Group, Inc. (the Company), included in the Company's
December 31, 1996, Annual Report on Form 10-K. Certain financial
information, which is normally included in financial statements prepared in
accordance with generally accepted accounting principles, is not required
for interim financial statements and has been omitted. The accompanying
interim consolidated financial statements are unaudited. However, in the
opinion of management of the Company, all adjustments, consisting of normal
recurring items, necessary for a fair presentation of operating results and
financial position for the periods shown have been made. Certain prior
period amounts have been reclassified to conform to current period
presentation.
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
which is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. SFAS No.
125 is based upon consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. The Company adopted SFAS No. 125 effective January 1, 1997,
as required. The requirements of SFAS No. 125 are substantially the same as
those which were previously applicable to the Company pursuant to the
provisions of SFAS No. 122, "Accounting for Mortgage Servicing Rights-An
Amendment of FASB Statement No. 65." Accordingly, adoption of SFAS No. 125
had no material impact on the Company.
As required by Accounting Principles Board Opinion No. 15, "Earnings per
Share," the Company has prospectively implemented a policy of reporting
primary earnings per share effective beginning in the first quarter of
1997. In February 1997 the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share", which is effective for financial statements
issued for periods ending after December 15, 1997. Early adoption of SFAS
No. 128 is not permitted. Basic and diluted earnings per share for the
third quarter of 1997 reported pursuant to the provisions of SFAS No. 128
after retroactive adjustment for a 5% stock dividend declared on October
31, 1997, would both be $0.12. Basic and diluted earnings per share for the
first nine months of 1997 reported pursuant to the provisions of SFAS No.
128 after retroactive adjustment for a 5% stock dividend declared on
October 31, 1997, would be $0.71 and $0.69, respectively. Adoption of SFAS
No. 128 should not result in any change in earnings per share for 1996 and
prior periods.
Effective April 1, 1997, the Company completed a merger with Meritage
Mortgage Corporation (Meritage), in which it exchanged approximately
$1.75 million of cash and 537,846 (564,738 after retroactive adjustment
for the 5% stock dividend declared on October 31, 1997) noncontingent
shares of RBMG common stock for all the outstanding stock of Meritage.
This transaction was accounted for under the purchase method of
accounting. In addition, 406,053 (426,355 after retroactive adjustment for
the 5% stock dividend declared on October 31, 1997) shares of RBMG common
stock were issued contingent upon Meritage achieving specified
increasingly higher levels of subprime mortgage production during the 31
months following closing. During the third quarter, 135,351 (142,118 after
retroactive adjustment for the 5% stock dividend declared on October 31,
1997) contingent shares of RBMG common stock were released. The fair
market value of
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the remaining contingent shares has been excluded from the purchase price
for purposes of recording goodwill and from outstanding shares for purposes
of earnings per share computations. As each specified increasingly higher
subprime mortgage production level is achieved, the corresponding fair
market value of the associated contingent shares will be recorded as
additional goodwill and such shares will prospectively be treated as
outstanding for purposes of earnings per share computations. The purchase
price for the Meritage merger has been allocated to tangible and
identifiable assets and liabilities based upon management's estimate of
their respective fair values with the excess of estimated cost over the
fair value of the net assets acquired allocated to goodwill. Goodwill and
other intangible assets are being amortized over a 20 year period using the
straight line method. Amortization expense for the third quarter and nine
month periods ended September 30, 1997 was approximately $103 and $181,
respectively. In connection with the acquisition, the following is a
schedule of the allocation of the purchase price:
Release of Through
At Acquisition Contingent September
on April 1, 1997 Shares 30, 1997
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Cash paid $ 1,750 $ - $ 1,750
Estimated fair market value of
shares of RBMG common stock issued or released 4,748 2,441 7,189
Deferred merger cost 463 - 463
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Total purchase price 6,961 2,441 9,402
Fair value of net assets acquired 1,000 - 1,000
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Goodwill and intangibles $ 5,961 $ 2,441 $ 8,402
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On April 18, 1997 the Company entered into separate definitive merger
agreements with Resource Bancshares Corporation (RBC) and Walsh Holding
Co., Inc. (Walsh) pursuant to which the Company, subject to approval by
shareholders of the Company and satisfaction of other terms and conditions,
would acquire all of the outstanding shares of RBC and Walsh. On November
3, 1997, the Company and Walsh announced mutual termination of their merger
agreement. Accordingly, during the third quarter of 1997, the Company
recorded a $2.3 million ($1.4 million after-tax) charge related
to joint termination of the Company's merger agreement with Walsh.
During the second quarter of 1997, the Company sold approximately $107
million of subprime mortgage loans to Walsh and recognized a gain of
approximately $3.7 million on those sales. Approximately $76 million of
such loans were included in a Walsh securitization which was completed in
June of 1997. The remaining loans were expected to be included in Walsh's
next securitization. However, during the third quarter the Company
repurchased the remaining $31 million of loans from Walsh and included
those loans in its first subprime securitization transaction which was
completed on September 29, 1997. Also during the third quarter, the
Company advanced approximately $3.8 million to Walsh in connection with
certain other transactions. In conjunction therewith at September 30,
1997, receivables of approximately $9.9 million are outstanding and due
from Walsh to the Company. Such receivables are cross-collateralized and
secured by an interest in a residual certificate and certain other assets.
The Company remains committed to completion of its pending merger with RBC.
RBC, a financial services company, originates and purchases, sells and
services small-ticket equipment leases through its Republic Leasing Company
division and originates and services commercial mortgage loans through its
Laureate subsidiaries. RBC, as of September 30, 1997, owned approximately
36% of the Company's common stock. Pursuant to the terms of the definitive
merger agreement between RBC and the Company and subject to shareholder and
regulatory approvals, RBC will merge with the Company in a transaction that
will be accounted for under the purchase method of accounting. The
agreement provides for the Company to issue approximately 2 million
additional shares of common stock, 2.1 million after giving effect to the
5% stock dividend declared on October 31, 1997, (in addition to the 7.4
million shares of Company stock currently owned by RBC, 7.8 million shares
after giving effect to the 5% stock dividend declared on October 31, 1997)
to the shareholders of RBC. As of September 30, 1997 the Company has
deferred approximately $1.0 million of merger costs related to this
transaction.
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During the third quarter of 1997, the Company recorded a special charge of
$7.9 million ($4.8 million after-tax) to fully reserve against certain
unrecoverable receivables. Since recording the special charge, management
has further reviewed and analyzed the components of the special charge with
the objective of assessing the affected accounts and determining the time
periods in which the variances arose. Approximately $6.1 million of the
charge relates to previously accrued interest income and primarily arose
during a period beginning in mid-1994 and ending in the second quarter of
1997. Approximately $0.9 million of the charge represents unrecovered
servicing advances for interim interest and escrow funds. The variance
arose during a period beginning in late-1995 and ending in early-1996.
Approximately $0.9 million of the charge relates to loan discount and
branch income accruals on retail loan production and arose during a period
beginning in mid-1995 and ending in mid-1996.
During 1995 and 1996 the Company's scale of operations grew dramatically.
The rapid growth outpaced increases in the Company's back-office
capabilities to timely process activities and research, review, resolve and
collect on the types of resultant items which ultimately resulted in the
above summarized variances.
Given the nature of these items, management is unable to precisely
determine the portion of the charge which relates to errors in reported
income versus valid receivables which have proven uncollectible. However,
management believes that such items, to the extent they would represent
errors in reported income of prior periods, are not material to the prior
periods to which they relate. Management believes its back-office
processing capabilities are currently appropriate and adequate in relation
to its current scale of operations.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE BANCSHARES MORTGAGE GROUP, INC.
(Registrant)
Steven F. Herbert
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Senior Executive Vice President and
Chief Financial Officer
(signing in the capacity of (i) duly authorized officer of
the registrant and (ii) principal financial officer of the
registrant)
DATED: November 26, 1997
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